The story of McCafe: when competing on price can fail

US McCafe is failing, according to an article in Bloomberg today that quotes McDonald’s executives conceding Starbucks has them on the ropes. It also cites market analysts who say the attempt to move into coffee is hurting their burger business.

This is despite a McDonalds latte costing only around $2.50, compared to around $3.50 for a Starbucks latte. But that price is hurting them – McCafe in the USA is seen as too cheap, too nasty.

From that Bloomberg article:

“Pushing coffee is “probably a good idea if they can get their customer to buy more of it,” said Peter Saleh, a New York-based analyst at Telsey Advisory Group. “I don’t think they’re going to be attracting the Starbucks customer to go there — I really don’t.””

Why is McCafe unpopular? For the same reason people won’t buy a suit at KMart – because coffee is a social signifier.

Coffee is not just a drink over there. It is redolent of sophistication. And Starbucks is Louis Vuitton. It would be shocking if a celebrity was papped without at least one mermaid-emblazoned frappuccino.

Frappucino Styles

If you think that there’s no prestige in something produced by a global chain, look in your cellar. See any Moet? Look in your wardrobe. See any Nikes? Just because in Australia we think we value independent coffee does not mean we can sneer at “masstige“.

But this is not just an American story or a business story. It’s a personal story. Melbourne is a coffee town. When McDonalds launched the McCafe in 1993, they launched it in Melbourne.

I remember when they opened a McCafe near my school. I drank their $1 cappuccinos, and it was good. There may not be a lot of quality there, but there was a lot of value. I have a soft spot for McCafe that I will never have for Starbucks.

And McCafe Australia is thriving.


Wait! What? Why is McCafe succeeding here but not America? I thought we were the sophisticated ones!

Pradoxically, the success of McCafe in Australia is because of our well-developed market.

I bought this McCafe latte today in the interest of research. At $3.55, it was too hot and overpriced. The longer I sat the better the coffee tasted – the beans were fine. But sitting in McDonalds – with the TV blaring and the bland-on-bland decor –  palled fast.

Latte-sipper was an insult once, a signifier of being a toff or a snob or a Vaucluse doctor’s wife. Now baristas are taking complaints that their latte ‘had shit mouthfeel’ from blokes with prison tattoos.

This is not despite, but because we have a more developed coffee culture.

They call it product life cycle. Something new starts off as being for just the few. A mobile phone, for example was once a sign you were or aspired to be Gordon Gekko. But if that product is good it will spread to all comers. They call that maturity, or saturation. The reason Australia can support both Seven Seeds (“carefully sourced single origins” $4+) and 7-Eleven (“freshly ground beans: $1) is that the market for coffee is … everyone.

Melbourne has had espresso for fifty years, since the first espresso machine was installed in Lygon St, at the venerable University Cafe.

Maccas has strived to keep themselves just out of the reputational gutter. In 2011 they issued a public apology for their coffee and pledged to train up baristas.

That depth of history means there is a strong bottom end as well as a strong top end in Melbourne’s espresso market. (But no room for a brand that peddles a unique combination of expensive and ordinary. In 2008 Starbucks announced it would close three-quarters of its 80 stores and it is still waiting to make an official profit.)

Not like America, where Starbucks is expanding into tea (and also expanding people’s body sizes. Starbucks offers a drink that, at 30.9 ounces, is larger than the human stomach.)

What American McDonalds needs to do is this:

Stick at it.

Eventually US coffee culture will mature. Espresso drinks will become a staple not a luxury. Then their years of offering McCafe will pay off.

As for me, after visiting a McCafe today in the name of research, I pledge to stick with Melbourne’s independent scene for the rest of my life.

Blog-lite, Starbucks in Nevada

Looks good doesn't it...

TTTE was none too impressed when Starbucks started showing up in its home town. Mocking references to “double orange mocha frappucinos” and “Starf**ks” were made on more than one occasion. But your correspondent didn’t just talk the talk, (other than one frustrating attempt to steal their wireless internet) TTTE had never set a foot inside one of their their faux-local, espresso by numbers, globe gobbling outlets.

That all changed today, at Breakfast time. Continue reading Blog-lite, Starbucks in Nevada

A better, faster coffee shop

I can imagine a coffee shop that works better. I want to cross a Ford factory with a sushi train and a horde of lemmings…

I buy a cup of coffee in two situations. One is where I am ‘having coffee’ and I want to linger.  In this case, the 3 dollars is a low low price to pay to rent a chair in a nice public space and shoot the breeze with somebody.

The other situation is take-away, when I’m on my way to work, or somewhere, and I need to wake up.

In the second case, the 3 dollars is an negligible cost for getting my day going.


Continue reading A better, faster coffee shop

Coffee Safari

Like many Melburnians, I secretly consider myself a coffee connoisseur. I’ve drunk a lot of strong flat whites in a lot of different places. I last had instant in 94. I like to go to cafes that will have excellent coffee.

And so, I have spent considerable time immersed in the wisdom of the internet. My distillation of the zillions of on-line debates, references and reviews says that Melbourne’s most-highly regarded coffees are at: Baba Budan and Cafenatics in the city; and St Ali in South Melbourne.

I wanted to try my hand at reviewing the best of the best, so I rang my friend Bill. He imposed one condition on our mission and we met at the GPO. Armed with paper, pencil and a willingness to consume more caffeine than is healthy, we set off. Continue reading Coffee Safari